To that I say you can have an even cheaper way to hedge against risk by having put options on the stock you own.

Also your example assumes that all the shares were bought at the same time and declined 50%. If you've been investing for years, the value of your gains/losses wouldn't simply be a "market crash" it would include the price at which you bought the stock at plus any dividends you reinvested. So a 50% downturn from a certain high point could be much less from how much capital you initially committed. Add to that you can take capital losses as a way to reduce tax liability in a given year.

There's enough ways to hedge without having too high of a cash drag.